A New Method of Invoice Financing

The government’s Supply Chain Finance Scheme (SCFS), announced by the Prime Minister last month, has had a mixed reception. The scheme provides that, if you send an invoice to a large corporation, the recipient can respond with a promissory note informing your bank that they intend to pay it. You can then draw on the amount promised from your account, but you will have to pay interest on it until the money comes in, albeit a smaller amount than on other types of loan.

SCFS has been quietly piloted and among the first major companies to sign up for it were Vodafone and Rolls Royce. In his announcement, David Cameron said, “ In the current climate, viable businesses can struggle to get the finance they need to grow – this scheme will not only help them secure finance and support cash flow, but will help secure supply chains for some of our biggest companies and protect thousands of jobs. It can be a win-win, with large companies and small suppliers both benefiting from this innovative scheme.”

A Positive Reception from the Federation of Small Businesses

Chairman John Walker’s response was “The new Supply Chain Finance Scheme could help smaller firms in two key areas - improving their working capital and tackling the issue of late payments. Nearly three quarters of small businesses report that they have been paid late in the past year, placing a huge strain on cash-flow and meaning they struggle to realise ambitions to grow.”

On the Other Side of the Fence

Some critics say it’s a way of enforcing invoice financing on small businesses. Everyone knows that small businesses can charge interest on late payments, but they don’t because they want to keep their customers. In this scheme, instead of charging interest, you’ll be paying it on the money you are owed, while big business can legitimately ignore your terms and pay you when they like.

Sitting on the Fence

Some who already operate in the invoice financing industry are undecided but cynical, wondering about the detail: the amount of interest, the documentation; the guarantees; dealing with the risk; and so on.

Matthew Fell of the CBI said, “Boosting the use of supply chain finance is an innovative way to ease the funding squeeze for many smaller businesses, but it is dependent on the nature of individual supply chains to work effectively so is not a one size fits all solution.”

Why not discuss your cash-flow problems with your outsourced bookkeeper before you decide to borrow from the bank in this way?

The Small Business Personal Touch

One of the advantages of being a small business is that your customer base is probably small enough to make good communication and a personal touch relatively easy. Of course, this might mean yet more tasks to add to your endless all-round list, but they are really important to maintain profitability and grow your company. You’ll be well aware that what keeps customers and clients loyal is not just what they buy from you, but also how it is packaged and delivered to them, and what happens next.

A Few Tactics for the Personal Touch

Do you contact them to ask if they are happy with their purchase? Do you make a point of collecting dates of birth, so that you can send congratulatory cards or emails for landmark birthdays or even every year? If they haven’t divulged the information, you can often find out from social media sites.

If they pay on invoice, do they know and accept your terms, so that they will pay you on time? Do you include friendly, personal messages when you send an invoice? Do you email a helpful reminder when the due date is close? Communication is even more vital if the payment isn’t forthcoming when you expect it.

Fun and Usefulness

Staying in touch with your clients is helpful for other reasons too. Enjoying a joke while talking to them on the phone or meeting them at networking events and business functions can put fun and inspiration into your business life. You could ask them for feedback to help you make decisions about developing what you offer. Knowing their circumstances will also alert you to any potential risks of doing business with them.

Some Serious Homework

As well as communicating with them, it can be helpful to do some homework on how they are contributing to your bottom line. Businesses often profit more from some customer relationships than from others. Senior managers and directors need to be aware of where their profits come from so they can make the business decisions that will take the business forward.

It’s worth analysing your customer base to work out which ones bring you the most value so you can at least be sure of the relationships it will be important to nurture. Undertaking or assisting with this analysis is one of the ways that your outsourced bookkeepers could help you. Because nothing remains the same all the time, it’s worth making this a regular project at appropriate intervals.

How would you Cope with a Tax Investigation?

Chancellor George Osborne’s tax yield targets have given HMRC quite a challenge. The revenue department seems to have responded by increasing its focus on investigating the tax affairs of small businesses. In 2011-12 it increased its collection of extra taxes and fines from SMEs by 39% on the previous year. In all likelihood the figures will continue to rise.

Checking on Different Areas

They are no longer just looking at PAYE and VAT, although of course it’s essential you get these correct. Employee benefits are facing greater scrutiny now. Woe betide an employer who slips up on the deductions that should be made. Even sole traders must take care about how much of their fuel costs they can claim as expenses.

Corporate entertainment is another area to be wary of. You can’t just push the boat out for clients and expect to claim all the costs as expenses; only if the tax man agrees it’s appropriate can you claim. Even entertaining staff as a reward for achievements or giving them a Christmas party has limits, and exceeding them can have tax consequences for the staff as well as the business.

Why SMEs are Hit

These are complicated and tricky areas to get right, so larger corporations who can afford to employ an army of accountants and advisers have the advantage. This is probably why it appears that HRMC are targeting smaller businesses and were able to collect £434 million extra from them in the last financial year. Smaller businesses don’t have the wherewithal to challenge their findings and usually succumb straight away to threats and pay up, which is not so often the case with major groups and companies.

HMRC, of course, deny that they have stepped up their focus for business compliance on smaller organisations. A spokesperson recently pointed out that they carry out investigations across the board wherever they suspect a serious risk of tax loss. Since 2006-07 they have also collected an additional £29bn in large business compliance revenue.

Help to Stay Compliant

Still the word is that SMEs are being hardest hit at the moment. Your outsourced bookkeepers can be a great help in making sure you stay compliant. To maintain a good reputation any such supplier will keep its staff up to date on tax regulations and they can also draw on what they learn from their experience with other firms. Only where it’s really necessary to pay the higher fees of involving an accountant will a bookkeeper advise you to do so.